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Vol. 19, 2021
A new decade
for social changes
ISSN 2668-7798
www.techniumscience.com
9 772668 779000Technium Social Sciences Journal
Vol. 19, 506-519, May, 2021
ISSN: 2668-7798
www.techniumscience.com
The effect of tax avoidance, sustainbility report, corporate
governance on firm value: Leverage as moderating
(Empirical Study On Registered Manufacturing Companies
On the Indonesia Stock Exchange 2014-2019)
Endro Andayani
Accounting Dept, Faculty of Economics and Business, Universitas of Trisakti,Jakarta,
Indonesia
endroandayani@gmail.com
Harti Budi Yanti
Accounting Dept, Faculty of Economics and Business, Universitas of Trisakti,Jakarta,
Indonesia
hartibudiyanti@gmail.com
Abstract. Disclosure about the factors that influence firm value is the aim of this study. Tax
avoidance variables, sustainability reports, corporate governance practices and leverage are
thought to influence firm value. Samples were selected based on certain criteria. Therefore, data
obtained from the Indonesia Stock Exchange as many as forty companies for six years (2014 to
2019). The results reveal that tax avoidance, sustainability reporting, corporate governance
practices affects firm value in a negative direction. Meanwhile, leverage affects firm value in a
positive direction. The effect of the sustainability report on firm value is proven not to be
strengthened by the leverage variable as a moderating variable, but it does strengthen the effect
of tax avoidance and corporate governance on firm value.. Originality / Value - This paper
contributes to three different series of studies: the literature on government as a determinant of
tax avoidance in Indonesia. For companies, evaluate, improve, improve performance. For
investors, to assist in making wise judgments about the value of the firm, it is worth considering
other factors and for the academy as the theoretical library used. For further research with
institutional ownership variable, financial crisis as a moderating variable
Keywords. Tax Avoidance, Sustainability Reporting, Corporate Governance, Leverage, Firm
Value
1. Introduction
Firm value is an indication of the company's ability to gain profit, becomes a guide for
creditors and investors in making decisions whether to lend or invest their funds or not. The
factors that influence in this study focus on tax avoidance, sustainability reporting, corporate
governance as an independent variable and leverage as a moderating variable.
According to (Rasyid, 2015) shows that company management increases firm value by
using leverage as a moderating variable. Previous research stated that firm value is influenced
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by debt in a positive direction (Kartikasari et al., 2019) and (Cheng & Tzeng, 2011), and other
factors that also affect company value are Tax Avoidance and Sustainability reports, based on
the results of research by (Xin-hua et al., 2015) which states that there is a role for effective
corporate governance, making tax avoidance activities increase corporate value. Likewise with
the Sustainability Report, the better the quality of the sustainability reporting, the stronger the
linkage (Loh et al., 2017). Researchers are interested in conducting this research because
previous research still has a research gap that shows the conclusions of various results such
as(Chen et al., 2014) that tax avoidance of firm value is not significant, (Emanuel & Rasyid,
2019) company size is not significant with value companies, (Kurniawan et al., 2018) there are
positive and negative results from each category, the sustainability report was not significant to
company value (Ratanacharoenchai et al., 2017), corporate governance is not significant to firm
value (Toledo & Bocatto, 2012).
The difference with previous studies is the location in Indonesia, the time period, the
moderating variable leverage. The benefit of this research is that it offers practical insight for
the government as a policy maker regarding corporate tax avoidance behavior so that it can
produce legal products with an effective and efficient tax system in Indonesia. For companies,
evaluate, improve, improve performance. Investors can assist in making a wise assessment of
company value. It is better if you pay attention to sustainability reports, good corporate
governance and leverage of a company, as well as other factors.
2. Review Of Literature And Hypothesis
2.1 Review Of Literature
Agency Theory
Described by Jensen and Meckling (1976) in agency theory, about the emergence of
agency relationships. If someone or more employs another person (agent) to provide services
and the agent is given the authority to make decisions.Management of a company that is handed
over to another person (agent) creates differences in interests between principle and the agents.
To resolve conflicts, in this agency theory it is explained that the company's activities will be
seen from its financial performance. According to this approach, financial performance is
structured in such a way as to reduce conflict between various groups. Agents in making
financial policies benefit company owners, causing agency problems. This agency problem is
minimized by agency cost, by providing incentives to prevent hazards. This results in costs for
the principal, such as expenses for monitoring the agent's actions and expenses for the existence
of a contractual agreement with the agent. The practice of implementing corporate governance,
to convince investors that managers will provide benefits for current and future company
owners, will not embezzle money or invest into projects that do not benefit investors, and are
related to how investors control managers (Shleifer & Vishny, 2007)
Signaling Theory
The assumption of Signaling theory is when there is information asymmetry between
managers and investors or potential investors. Managers are seen as having information that
investors or potential investors do not have. This theory explains the importance of companies
presenting information to the public (Wolk et al 2013) . Giving signals is carried out by
management to reduce imbalance of information or theory that discusses how the theory that
can show the success or failure of management (agent) should be conveyed to the owner
(principal). According to (Connelly et al., 2011), this theory can explain the behavior of
individuals or organizations that have different information. Typically, one party, choosing
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whether and how to signal that information, and the receiver, must choose how to interpret the
signal.
Stakeholder theory
According Freeman ( 2001) This theory explains the company's activities in relation to
its stakeholders (shareholders, creditors, government, society, consumers, suppliers, analysts
and other parties) and (Gray et al., 1995) stated that stakeholders can support the survival of the
company in the future, therefore efforts are made so that all company activities receive this
support. Company communication with stakeholders can be seen from the disclosure of social
and environmental responsibilities.
Legitimacy Theory
This theory advances the concept of organizational legitimacy which can be used as a
source of corporate survival (Dowling & Pfeffer, 1975) and (Gray et al., 1995) states that the
company's value system must be in line with the community's value system so that its activities
and performance are accepted by society and the company. can continue to operate
2.2 Research Rationale
Figure 1: Research Concept
Tax Avoidance (TA)
H1
Sustainbility Report (SR) H2 Firm Value(FV)
^
Corporate H3
Governance(CG) H4 H5 H6
Leverage(L)
-Size Company
(SC)
Source: processed by the authors
2.3. Hypothesis
Tax Avoidance and Firm Value
One of the tax avoidance practices that affect firm value is to report the minimum profit
so that the amount of tax is small (Brown, 2012). In agency theory, it is possible if agency
problems arise, such as problems between principle and agent, as well as controlling principal
with minority . the relationship tax avoidance with firm value is explained in the agency
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perspective. Tax avoidance with current income is not recognized, it is recognized in the future
so that the current period profit is small. Research that aims to see how the market reacts to
tax avoidance practices carried out by companies (Inger et al., 2018), shows that tax
aggressiveness can increase or decrease firm value. Increases if it is seen as an effort to carry
out tax planning and tax efficiency, and decreases if it is seen as non-compliance which will
increase the risk. If shareholders do not appreciate tax avoidance, it will actually result in a
decrease in value . (Yee et al., 2018). Based on these arguments, the researcher formulates the
following hypothesis: The effect of Tax Avoidance on firm value shows a negative direction
H1. Tax Avoidance has negatie effect to firm value
Sustainbility Report and Firm Value
The most dominant theories in the practice of sustainability reports are theory : agency
, legitimacy and stakeholder. Agency theory (Jensen and Meckling, 1976), describe reducing
information asymmetry between companies and external agents, companies use multiple
communication channels to produce sustainability reports which are adopted from GRI as a way
to reduce information asymmetry and agency costs. Based on previous research, it is stated that
the relationship between sustainability reporting (SR) and the company's market value is
positive (Swarnapali & Le, 2018). This relationship does not depend on the sector or status of
the company such as companies related to the government and family businesses in Singapore
The results revealed a positive relationship between sustainability reporting (SR) and firm
market value (Loh et al., 2017). The hypothesis is as follows:
H2: Disclosure of the Sustainability Report on company value has a positive effect
Corporate Governance
According to agency theory, There are differences in interests between shareholders and
agents, shareholders expect large returns, while agents are more concerned with individual
interests. There is a problem of information asymmetry when the principal appoints an agent to
manage the company, so that the agent does not prioritize individual interests, there is a need
for governance to address this issue. Menurut (Andrei Shleifer & Vishny, 1997) explained that
as a control mechanism system, corporate governance aims to make financial suppliers get a
return on their investment ”. This implies the importance of safeguarding the interests of
shareholders and stakeholders. Expropriation Risk Index (ERI), as a controller incentive
measure to tunnel in concentrated tunneling in chaebol companies has a positive effect on the
existence of corporate governance (Black et al., 2015) . The Corporate Governance Index as a
measure of corporate governance variables based on OECD principles. The research hypothesis
is:
H3: The influence of the level of corporate governance on firm value is positive
Leverage
Tax avoidance can be done by increasing the debt , so that the interest expense is high,
then the profit is small, the taxes paid are small. However, this does not necessarily affect the
increase in company value .(Brigman and Houston, 2011), this is supported by the signaling
theory that there is a high capital structure as a signal that if shares are offered in the company,
it is certain that the company's prospects are positive, on the contrary if it is offered outside of
equity (Ross, 1977) and companies should consider the agency costs of accounts payable and
agency costs of equity (Myers, 1977). Regulation in Indonesia: No. 169 / PMK.010 / 2015
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stipulates that there is a limitation between the ratio of debt and company capital for the purpose
of calculating income tax:
H4: The level of leverage weakens negatif effect of Tax avoidance to firm value
The Theory Agency (Jensen & Meckling, 1976) states that companies with higher
leverage will voluntarily disclose more information to meet creditors' information needs. By
continuing to report this can alleviate stakeholder concerns, so as not to attract investment in
the company so that the value of the company is not down. This is supported by the results of
research which found supporting evidence related to a positive relationship between leverage
and sustainability reports (Beelde & Tuybens, 2015).
H5: The level of leverage strengthens positif effect of Sustainability Report
Disclosure to firm value.
Firm value can be increased through debt policy (Obradovich & Gill, 2012) and the
leverage has a positive effect on firm value before achieving the optimal capital structure
(Cheng & Tzeng, 2011). Corporate governance practices carried out by companies can affect
credibility or can provide useful guidance for investors (theory signaling). The existence of
proper implementation in corporate governance which can reduce the bad behavior of agents or
managers (Ionescu; 2012). Thus, there is positive effect on the relationship the quality of
corporate governance with firm value (Ionescu, 2012).The hypothesis is as follows:
H6 : Leverage level strengthens positive effect of corporate governance practices to firm
value
3. Research Method
This paper re-examines the factors that influence the value of manufacturing companies
on the Indonesia Stock Exchange. Samples were selected based on the criteria (1) the company
has a profit of more than 50 billion before tax which is positive in the period 2014 to 2019. (2)
share price data is available during the observation period. (3) The firm has an annual
Cash_ETR (CETR) between 0 - 100 percent. Higher CETR means higher tax risk. Therefore,
we expect that these CETR has a positive coefficient. Based on these criteria, 40 companies
were selected with a 6-year observation period (2014 to 2019) so that the total data processed
was 240 firm years. Data is obtained from company annual reports published on the Indonesia
Stock Exchange through www.idx.co.id, while stock market price data is obtained from
www.finance.yahoo.com.
Research Variables and Variable Operational Definition
The variables of this study include firm value (as dependent variable), tax avoidance,
sustainability report and corporate governance (as independent variable) and leverage (as
moderating variable). The definitions and measurements of each variable are described below.
Firm Value is the result obtained since its establishment until now because of public
trust. Firm Value in this study is the dependent variable . For companies that have gone public,
firm value is reflected in the stock prices listed on the stock exchange. According to (Kartikasari
et al., 2019) firm value is obtained from Tobin's ratio which is measured by the following
formula:
Tobin's Q = MVE +D
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BVE+D
Tax avoidance is a strategy that does not violate tax laws with the aim of the minimum
amount of tax to be paid. Tax avoidance as an independent variable in this study is done by
taking advantage of the existing loopholes in statutory regulations. Cash Effective Tax Rate is
obtained by dividing the tax burden (taxes paid) by the company by the amount of company
profit before tax (Octaviana et al., 2018). The following are the equations used in measuring
tax avoidance:
The Sustainability Report is activity report on the economy, labor practices and
workforce comfort, human rights, social, products. In this study Sustainability Report (SR)
variable is the independent variable . The SR calculation uses a dichotomy approach, namely if
the specified information item is disclosed, it is given a score of 1, and if the information item
is not disclosed, it is given a score of 0. The disclosure of social and environmental
responsibility by the company is compared to the number of disclosures required in GRI which
includes 91 items disclosure (Wibowo &Faradiza, 2014). The measurement of the sustainability
report disclosure was carried out non-repeated, meaning that it only counted once for each item
without considering the item being expressed in another section in a different language. The
SRDI calculation formula is as follows:
corporate governance is designed so that companies professionally apply the principles
of transparency, accountability, responsibility, independence, fairness and equality .Based on
research (Black et al., 2015) in Korea and according to research (Permata et all, 2012) in
Indonesia, the Corporate Governance Variable is measured using the Corporate Governance
Index based on the principles of the OECD. This principle is in accordance to be presented in
the financial statements The scoring of all aspects of the Corporate Governance Index (CGI)
which consists of 46 index numbers using a ratio scale consisting of several indices using
dummy measurements. Assessment on the CGI value has a different number of percentages The
percentage of each aspect is divided in detail, shareholder rights have a percentage of 20%, fair
treatment of shareholders is 15%, the role of stakeholders is 15%, disclosure and transparency
has a percentage of 25 %, and board responsibility at 25%.
Leverage define as the use of assets and sources of funds by companies that have fixed
costs (fixed expenses) to increase shareholder profits. Leverage (as moderating variabel)
measured based on the research (Obradovich & Gill, 2012):
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Company size (moderating variabel) is the scale of the company as seen from the
company's total assets at the end of the year. Company size measured based on the research
results (Endri & Fathony, 2020) with Ln Total Assets.
The multiple regression equation is as follows: Hypothesis 1, 2 , 3, 4,5 and 6
FV = β0 + β1TA + β2SR + β3CG + β4TA * L + β5SR * L + β6CG * L + β7 SC+ ℇ
4. Results And Discussion
This study uses secondary data obtained by 40 companies listed on the Indonesia
Stock Exchange as shown in Table 1 below :
Tabel .1 : List of Sampe Firm
(Manufacturing Sector Companies Listed on IDX for 2014-2019 )
No Code Firm’s Name No Code Firm’s Name
Indofood CBP
ICBP
1 Sukses Makmur 21 PYFA Pyridam Farma
2 MYOR Mayora Indah 22 ASII Astra International
Nippon Indosari
3 ROTI Corpindo 23 AUTO Astra Otoparts
4 SKLT Sekar Laut 24 BRAM Indo Kordsa
5 STTP Siantar Top 25 GJTL Gajah Tungal
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Wilmar Cahaya
6 CEKA Indonesia 26 INDS Indospring
Indofood Sukses
INDF
7 Makmur 27 SMSM Selamat Sempurna
Prasidha Aneka
PSDN
8 Niaga 28 ERTX Eratex Djaja
Tiga Pilar Sejahtera
AISA
9 Food 29 PBRX Pan Brothers
10 DLTA Delta Djakarta 30 RICY Ricky Putra Globalindo
Multi Bintang
MLBI
11 Indonesia 31 SRIL Sri Rejei Isman
12 ALTO Tri Banyan Tirta 32 STAR Star Petrochem
Ultra Jaya Milik
ULTJ
13 Industri 33 UNIT Nusantara Inti Corpora
14 GGRM Gudang Garam 34 IKBI Sumi Indo Kabel
15 HMSP HM Sampoerna 35 JECC Jembo Cable Company
Wismilak Inti
WIIM
16 Makmur 36 KBLI KMI Wire & Cable
Darya Varia
17 DVLA Laboratoria 37 KBLM Kabelindo Murni
Supreme Cable
Manufacturing &
18 KAEF Kimia Farma 38 SCCO Commerce
19 KLBF Kalbe Farma 39 VOKS Voksel Electric
20 MERK Merck 40 BATA Sepatu Bata
4.1 Descriptive statistics
Tabel 2: Descritive statistics
FV TA SR CG L SC
Mean 8.55 -0.13 0.14 0.71 0.92 29.30
Maximum 353.68 9.54 0.36 0.82 5.20 34.98
Minimum -2.38 -114.77 0.04 0.41 0.01 20.17
Std. Dev. 39.90 7.56 0.06 0.06 0.73 2.19
Observations 235 235 235 235 235 235
According to the results of the descriptive statistical test, the number of variables there
are 6 as follows :FV, TA, SR EM, LEVERAGE, SC by the number of samples a total of 235
companies. FV is Firm Value as the dependent variable is measured by Tobin's Q formula tested
by(Ficici & Aybar, 2012). Value average value company amounted to 8.55 which indicates that
that on average there is growth the value of the company. This is based on the value of the
results calculation of the average FV >Tobin's Q indicator value, that is 8.55>1. The maximum
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value indicates the value The highest company FV is 353.68, while the lowest value is -2.38.
The standard deviation or inequality value is 39.90 indicating the average deviation from the
firm value variable (FV). The first independent variable is Tax avoidance (TA) which is
measured using ETR (effective tax rate ) as the first independent variable shows an average
value of -0.13 which indicates that the company has high tax avoidance. The maximum TA
value of the company is 9,54 while the lowest value is -114,77. The standard deviation value or
inequality is 7.56, indicating that the average TA deviation. The average SR is 0.14 with a
minimum of 0.04 and a max of 0.36 and a standard deviation of 0.06. For the Corpororate
Governance , an average of 0.71 with a minimum value of 0.41 and a maximum of 0.82 and a
standard deviation of 0.68.Firm size or company size (SIZE) as a control variable shows an
average value of 29.27 which indicates that the size of the company in Indonesia for the 2014-
2019 period seen from its total assets is 29.27. The maximum value shows that the largest size
of the company is 34.98, while the lowest value is 20.17. The standard deviation or inequality
value of 2.19 indicates the average deviation of company size (SIZE).
4.2 Hypothesis Testing
Before testing the hypothesis, first, the normality test and and fit of the research model.
This hypothesis testing uses Eviews 10 software. Based on normality testing, the Jaque-Bera
(JB) value is 0.274828, with a probability value of 0.871609. Analyzer The normal test is the
Jarque-Bera (JB) test because the sample is large (asymptotic). Normally distributed: the JB
value is not significant ( 5% (not significant. So, the data is
normally distributed.
Based on the results of the Cow test, the probability value of 0,000 (less than 5%), the
fixed effects test is better. Next, based on Hausman test, the probability value is 0.4867 (greater
than 5%), means the random model is better. This result confirmed test the first fixed effect is
invalidated. Random effect became the last model test with LM Test resulting p value is smaller
than 5% (significant).
Goodness of Fit Model (R2) is to determine the size of the contribution of the
independent variable to the dependent variable. This can be seen from the value of R 2. Based
on table 1 Adj R2 = 0.572982, it means that the variation of the independent variation 57.72%
is able to explain the dependent variable , 42.28% influenced by other variables. Based on the
regression results of the statistical F value of 45.85518 with a Prob (F-statistic) of 0.000000
which is less than 0.05, this means that it indicates that the model used in this study is feasible.
The conclusion is that all independent variables: Tax Avoidance, Sustainability Report,
Corporate Governance and Size company together have an effect on firm value.
Based on the t test, where this test is carried out to determine the individual influence of
the independent variable on the dependent variable, it produces their respective influence.
variables as follows:
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5. Discussion
This study proves that tax avoidance has a negative effect on supported Firm value (H1).
These results prove that the actions of managers who practice tax avoidance can increase
company risk, increase agency costs and the resulting financial reports can mislead investors
because they do not describe the real situation. The results are consistent with the agency cost
theory that tax avoidance is considered to be complex, this causes managers to cover up their
actions in exploiting wealth from tax saving activities. (Akbari et al., 2019) and (Yee et al.,
2018)
The Sustainability Report Disclosure is unable to affect firm value, means H2 not
supported. Companies that publish the Sustainability Report do not guarantee that their
company performance will improve, and this may be due to investors being more interested in
buying legitimate companies that generate the expected profit and do not care about the
disclosure of the Sustainability Report. This Result is supported by research (Purwohandoko,
2017), (Iswati, 2020) and (Ratanacharoenchai et al., 2017) which means that the value of the
company is not affected by the sustainability report where the price and number of shares of the
company are circulating on the stock market.
Corporate Governance is unable to affect firm Value. CGPI is not a significant
determinant of firm value, many are influenced by other factors. Many companies in Indonesia
are unapprised of the importance of implementing corporate governance. So that the inclusion
of companies in the corporate governance perception index ranking on investors are not effect
. The results of this study support (Meythi & Devita, 2011) that corporate governance perception
index has no effect on firm value, due to the fact that the implementation of good corporate
governance is felt by go public companies as a demand for existing regulations, not as an
important requirement for companies, so that there is less awareness of these companies to
implement good corporate governance.
Hypothesis H4 the negative effect of tax avoidance on firm value is weakened by the
degree of leverage. Management's job is to make financial reports, agents can avoid high tax
payments by reporting high corporate leverage, so that the company's interest expense is high,
profit. a small amount causes the tax that the company pays to be small, by paying a high tax
burden. Small companies can increase company value so that they can attract investors to invest
in the capital market (Jaros & Bartosova, 2015): The theory based on the assumption does not
fit the real conditions is "MM". According to the author, there is an effect of income tax on the
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average cost of capital and the firm's market value . In 1963 his ideas were amended in the
work: "Corporate Income Taxes and Cost of Capital" published in the American Economic
Review, p. 433-443 (June 1963). The average cost of capital decreases under the effect of the
interest tax hedge, the return on equity and market value also increases, this is due to the increase
in debt. Thus, if you increase the portion of debt, you must consider the capital structure
The hypothesis H5 not supported. This means leverage unable strengthens positif effect
of Sustainability report to firm value. This result confirmed (Emanuel & Rasyid, 2019) states
that leverage does not affect firm value . Else, (Ratanacharoenchai et al., 2017) sustainability
report is also not influenced by firm value. If the level of leverage ratio in the company is getting
higher, the corporate social responsibility will be lower carried out by the company and will
affect the decline in company value, because the company is considered to reduce costs for
disclosing social responsibility and will use the funds to pay its debts so as not to be in the
spotlight. from creditors.
The hypothesis H6 Leverage level strengthens corporate governance practices on firm
value that leverage, supported. This result supported Ionescu (2012) states that corporate
governance practices carried out by companies can affect credibility or can provide useful
guidance for investors (theory signaling). The bad behavior of agents or managers can be
reduced by implementing governance appropriately. Thus, the relationship the quality of
corporate governance with firm value is significantly positive.
Conclusion
The results of this study provide evidence, The effect of tax avoidance on corporate
value is negative. Likewise, leverage weakens the negative effect of tax avoidance on firm
value. Furthermore, leverage strengthens corporate governance practices on firm value. This
means increased tax avoidance will reduce company value, tax avoidance strategies are
detrimental to investors in Indonesia, because it tends to minimize the current tax amount, it is
feared that it will have an impact on future tax payments, so that it does not affect investors'
decisions.
Based on data, disclosure of sustainability reports in Indonesia is still very low so that
it is unable to increase the company value. Implementasi CG tidak dapat mempengaruhi firm
value, an indication, in Indonesia the implementation of corporate governance is not high and
not as an important requirement for companies, so that there is less awareness of these
companies to implement good corporate governance.. Leverage have positive effect of Tax
Avoidance to Firm Value. This means, firm avoid high tax payments by reporting high
corporate leverage, so that the company's interest expense is high, profit is decrease. Leverage
are not significant to moderate positif effect of sustainability report to firm value. But, leverage
are significant to moderate the positif relationship among corporate governance implementation
to firm value.The existence of proper implementation in corporate governance which can reduce
the bad behavior of agents or managers. Thus, The influence of the quality of corporate
governance and firm value is a significant positive (Ionescu, 2012)
This study has several limitations, such as lack of data and samples that become the
object of research should be more than 5 years. Based on the results and conclusions obtained,
the suggestions for future research by using another industrial data in Indonesia, or other
country. Using market value to measure firm value, financial distress as moderating variable
another suggestion for future reseach.
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